The partnership, or a withholding agent for the partnership, must pay the withholding tax. A partnership that must pay the withholding tax but fails to do so, may be liable for the payment of the tax and any penalties and interest. The partnership must determine whether a partner is a foreign partner. A foreign partner can be a nonresident alien individual, foreign corporation, foreign partnership, foreign estate or trust, foreign tax-exempt organization, or foreign government. U.S. partner A partner that is a U.S. person should provide Form W-9 to the partnership. A partnership may rely on a partner's certification of nonforeign status and assume that a partner is not a foreign partner unless the form: Does not give the partner's name, U.S. taxpayer identification number, and address, or Is not signed under penalties of perjury and dated. The partnership must keep the certification for as long as it may be relevant to the partnership's liability for IRC section 1446 tax. The partnership may not rely on the certification if it has actual knowledge or has reason to know that any information on the form is incorrect or unreliable. If a partnership does not receive a Form W-9 (or similar documentation) the partnership must presume that the partner is a foreign person. Foreign social security pensions A partner that is a foreign person should provide the appropriate Form W-8 (as shown in chart A) to the partnership. Partners who have otherwise provided Form W-8 to a partnership for purposes of IRC sections 1441 or 1442 can use the same form for purposes of IRC section 1446(a) if they meet the documentation requirements. However, a foreign simple trust that has provided documentation for its beneficiaries for purposes of IRC section 1441 must provide a Form W-8 on its own behalf for purposes of IRC section 1446. The partnership may not rely on the certification if it has actual knowledge or has reason to know that any information on the form is incorrect or unreliable. The partnership must keep the certification for as long as it may be relevant to the partnership's liability for IRC section 1446 tax. Chart A. Documentation for Foreign Partners* IF you are a... THEN provide to the partnership Form... nonresident alien W-8BEN foreign corporation W-8BEN-E foreign partnership W-8IMY foreign government W-8EXP foreign grantor trust** W-8IMY certain foreign trust or foreign estate W-8BEN foreign tax-exempt organization (including a private foundation) W-8EXP nominee W-8 used by beneficial owner * A partnership may substitute its own form for the official version of Form W-8 to ascertain the identity of its partners. **A domestic grantor trust must provide a statement as shown in Regulations section 1.1446-1(c)(2)(ii)(E), and documentation for its grantor. Amount of withholding tax The amount a partnership must withhold is based on its effectively connected taxable income that is allocable to its foreign partners for the partnership's tax year. However, refer to Publicly Traded Partnerships. The foreign partner's share of the partnership's gross effectively connected income (ECI) is reduced by: The partner's share of partnership deductions connected to that income for the year, and The partner's tax treaty benefits related to that income. The partnership may reduce the foreign partner's share of partnership gross ECI by the following. State and local income taxes the partnership withholds and pays on behalf of the partner on current year effectively connected taxable income allocated to the partner. The foreign partner's partner-level deductions and losses that the partner certifies to the partnership as: Carried forward from a prior year, Properly allocated to gross ECI of the partner's trade or business in the United States, and Reasonably expected to be available and claimed on the partner's U.S. income tax return. To certify the deductions and losses, a partner must submit to the partnership Form 8804-C. If the partner's investment in the partnership is the only activity producing ECI and the section 1446 tax is less than $1,000, no withholding is required. The partner must provide Form 8804-C to the partnership to receive the exemption from withholding. A foreign partner may submit a Form 8804-C to a partnership at any time during the partnership's year and prior to the partnership's filing of its Form 8804. An updated certificate is required when the facts or representations made in the original certificate have changed or a status report is required. Tax rate The withholding tax rate on a partner's share of ECI is 37% for noncorporate partners and 21% for corporate partners. However, the partnership may withhold at the highest rate applicable to a particular type of income allocated to a partner, provided the partnership received the appropriate documentation. See section 1.1446-3(a)(2)(ii) of the regulations. Installment payments A partnership must make installment payments of withholding tax on its foreign partners' share of effectively connected taxable income whether or not distributions are made during the partnership's tax year. The amount of a partnership's installment payment is the sum of the installment payments for each of its foreign partners. The amount of each installment payment can be figured by using Form 8804-W. Date payments are due Payments of withholding tax must be made during the partnership's tax year in which the effectively connected taxable income is derived. A partnership must pay the IRS a portion of the annual withholding tax for its foreign partners by the 15th day of the 4th, 6th, 9th, and 12th months of its tax year for U.S. income tax purposes. Any additional amounts due are to be paid with Form 8804, the annual partnership withholding tax return. For additional information on Partnership Withholding on Effectively Connected Income, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Related Partnership Withholding Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court cases filed on or after May 1, 1986, visit the Opinions Search page of the United States Tax Court.
